LED chip prices rose by half who is the initiator?

This year's LED industry can be described as hot. One of the hottest is the upstream equipment, raw material suppliers, and mid-stream chip makers! Diyuan Optoelectronics Co., Ltd., located in Wuhan, is China's largest manufacturer of high-power chips. When the reporter visited the factory, they saw that the factory was working overtime to produce chips, and risk investment institutions also kept coming to the forefront in order to participate in shares.

LED chip prices soar, but the market is still in short supply

This rise in chip prices is somewhat unconventional. By convention, the price of LED chips has fallen more than once, and the average annual decline has reached 20%; while the second quarter is usually the traditional off-season, the possibility of price increases should have been even smaller. In this unexpectedly rapid price increase, China's major chip giants ushered in a period of high profit growth. Taking Silan Micro as an example, the gross margin of its LED chips was 40% in the fourth quarter of 2009, and its gross profit has been increased to 50% by the second quarter of 2010. Although the prices of LED chips and epitaxial wafers are rising, the market is still in short supply.

Who is the driving force behind the rise in chip prices?

Who pushed up the global chip price? Faced with a huge supply gap and rising prices, why are LED chips and epitaxial wafer makers not rapidly expanding production? According to the reporter's understanding, LED chips and wafer manufacturers are in a defensive position, because the upstream equipment and raw materials are monopolized by giants from overseas and fall into a serious shortage, which tightly hampers the pace of expansion of Chinese companies. .

First, MOCVD, which is the main equipment for producing LED chips, is seriously out of stock. Xi'an Zhongwei Optoelectronics Co., Ltd. stated that two sets of MOCVD ordered at the end of 2009 had waited six months to arrive. At present, the global market for MOCVD equipment is monopolized by Aixtron in Germany and Veeco in the United States. Together, the two companies have received orders for 600 to 700 units this year. The market research organization Shuiqing Muhua Research Center pointed out in the report that the two companies are expected to ship 662 MOCVD devices this year, which is the sum of the shipments in the past three years. It is expected that the shipment volume in 2011 will remain at a record high. Given that capacity is far from meeting demand, MOCVD equipment orders have been scheduled for 2012.

What followed the order was profit growth. Aixtron's revenue for the second quarter reached 198 million euros, an increase of 24% year-on-year, with orders received amounting to 175 million euros (up 4% year-on-year); Veeco's revenue for the second quarter reached 253 million US dollars, an increase of 55% year-on-year. Veeco Chief Executive John R. Peeler said that in the second quarter alone, it received 347 million U.S. dollars worth of orders, setting a record high. Among them, LED-related orders for solar energy amounted to 260 million U.S. dollars. It is estimated that the revenue for 2010 will exceed 1 billion U.S. dollars.

Second, sapphire substrate, organic metal (MO) gas and other materials, which are important raw materials, have declined in price. Since the end of last year, the two-inch sapphire substrate has risen from a minimum of $8/piece to about $30/piece. The current rally has yet to show signs of stagnation. Recently, Rubico, the global leader in sapphire single crystal leading plants in Illinois, decided to continue raising the price of sapphire substrates in the fourth quarter. Rubicon's price hikes can be described as fearless, because manufacturers such as China and South Korea's large-scale expansion of MOCVD equipment has resulted in a sapphire substrate supply gap of up to 10% to 30%. Rubicon's downstream customers can only passively accept price increases. Jiang Zhongyong, the general manager of Hangzhou Shi Lanming, worriedly stated that there may still be a shortage of sapphire substrates in the next two years.

Developed countries hold the right to speak on LED chip technology, and 80% of domestic high-end chips rely on imports. In addition, the lack of uniform production standards and test methods for LED lamps also greatly limits the development of China's LED lighting industry. MOCVD equipment, sapphire substrate and so on account for a large proportion of the total cost. Among them, the sapphire substrate accounts for about 12% of the total cost. Therefore, the shortage of these important upstream equipment and the rise in raw material prices have directly pushed up the cost of LED chips and epitaxial wafers. Even if MOCVD and sapphire substrates arrive, it does not mean that they can reach production immediately. It takes at least 3 months to 6 months for installation, commissioning and trial production. Only a handful of companies can reach production within two months. This “rising up” situation in the upper reaches of the country is exposing the shortcomings of China’s LED industry. Ren Yuanhui, researcher of the China Lighting Association's Indoor Lighting Professional Committee pointed out that China has not yet formed a complete LED industry chain.